The Steep Decline in the Employer Share of Tipped Workers' Wages

June 9, 2014

Employers in MA Can Pay
Tipped Workers Just $2.63/hr

By
law, employers may pay a lower hourly
wage to certain workers who
regularly earn tips - as long as those tips bring the tipped workers'
pay up to the level of the regular minimum wage (otherwise, the
employer must make up any difference). For decades, up through the
mid-1990s, employers were required to pay tipped workers 60 percent of
the regular minimum wage. In 1996, that fixed percentage was reduced to
50 percent and in 1997 the amount employers are required to pay tipped
workers was set at $2.63 per hour. Despite several increases in the
regular minimum wage, the tipped minimum's value has not been increased
since. Today, the tipped minimum in Massachusetts has declined to just
one third the value of the state's regular minimum wage. (For more
details see MassBudget's factsheet The
Declining Value of the Tipped
Minimum in Massachusetts.)

Many tipped
workers must make ends meet on very low incomes (in
addition to other job-related challenges many tipped workers face, such
as unreliable and unpredictable hours).1
Nationally, poverty rates among tipped workers are more than
double the rates for all workers.2
However, states with the highest tipped minimum wages have much lower
poverty rates among their tipped workers than states with the lowest
tipped minimums (12.1 percent vs. 16.1 percent, respectively).3
Notably,
tipped workers are overwhelmingly female and above 20 years in age.4
(For more details about tipped workers, see MassBudget's
factsheet The
Minimum Wage for Tipped Workers.)

Currently, eight states require
employers to pay tipped workers the full minimum wage
amount.5
In Massachusetts – with the
lowest tipped minimum wage of any state in New England
6
- Legislators now are considering three proposals for
increasing the
state's minimum wage, including the tipped minimum wage. None of the
proposals suggests requiring employers to pay tipped workers the full
minimum wage, but one would require that they pay half the minimum wage
amount and another would restore the requirement that they pay 60% of
the full minimum (before counting tips - see chart, below). These
reforms could result in meaningful income gains for many of the roughly
100,000 tipped workers in the Commonwealth.

Notably,
careful studies by leading economists (of both long-run and
current data) show that higher tipped and higher regular minimum wages
have little or no effect on employment in the relevant job
sectors.7
Similarly, the National Restaurant Association
itself projects little difference in food service job growth among
states with high, medium and low tipped minimums over the coming
decade.8
(For more discussion of the effect of the tipped
minimum on employment, see MassBudget's factsheet Job
Growth Unrelated
to States' Tipped Minimum Wage.)